Investors are split on whether the Bank of Japan will raise rates to a decade-high of 0.5 percent from 0.25 percent at its two-day policy meeting starting on Tuesday.

But with growing expectations that this will make little difference either way to the Japanese currency’s appeal as a cheap funding vehicle, the yen extended losses against the dollar and euro.

A quarter-point rise would still keep Japanese interest rates at the lowest in the industrialised world, against 5.25 percent in the United States and 3.5 percent in the euro zone.

‘Most people are expecting that even if the BOJ was to hike they are looking to sell the yen on the rally. All the BOJ meeting will do is that it will affect the timing to sell the yen,’ said Bilal Hafeez, head of currency strategy at Deutsche Bank.

The dollar grappled with its own woes, hitting a six-week low against the euro before US inflation figures on Wednesday, and after US data and comments from the Federal Reserve chairman last week stirred expectations the Fed may start to cut rates this year.

By 1015 GMT the dollar was at 119.96 yen, edging further away from a six-week low of 118.96 set last week.

The euro was up 0.3 percent at 157.70 yen, approaching its record high of 159.00 set last week.

The single currency rose to $1.3189, its highest since early January, before trimming gains to $1.3145.

Japanese government bond (JGB) prices were steady while US Treasuries dipped in Asia as investors took profits after three straight sessions of gains fuelled by talk of US rate cuts.

Treasuries futures prices stayed near six-week highs before the US inflation data and minutes of the Fed’s last policy meeting, also due on Wednesday.

US markets reopen on Tuesday after the Presidents’ Day holiday, but trading was thinned in Asia by Lunar New Year holidays in China, Hong Kong, Singapore and Taiwan, and in Germany by a continuing Carnival break in parts of the country.

Euro zone government bonds eased on technical factors while traders waited for the Bank of Japan decision and eyed the shrinking U.S.-euro zone yield spread. The 10-year Bund yield was 2.6 basis points higher at 4.093.

Shares take stock

Rates uncertainty also hovered over equity markets, which hit multi-year highs on Monday on speculation over a slew of possible takeovers and mergers.

Japan’s broadest stock index, the TOPIX, hit a 15-year peak of 1,784.20 before closing marginally higher, driven by expectations of consolidation and earnings upgrades in the steel sector.

But investors there were generally wary ahead of Japan’s rates decision. The main Nikkei average, which scaled a near-seven-year high on Monday, closed a whisker down at 17,939.12.

European shares slipped from Monday’s six-year highs after disappointing updates from Cadbury Schweppes and Scottish & Newcastle offset takeover talk in the music and building materials sectors.

The FTSEurofirst 300 index of top European shares was nearly 0.2 percent lower at 1,547 points, retreating from Monday’s six-year peak of 1,552,59. The MSCI All-Country World Index was down 0.04 percent at 381.20.

Energy stocks also weighed as oil prices stayed under pressure from the upcoming end of winter oil demand in the United States, the world’s biggest consumer.

London Brent crude oil staged a fragile recovery, rising 10 cents to $58.24, but remained locked in the range of $57-$60 a barrel that has held for the past three weeks.